EUROPE ENDS IN THE GREEN A CHALLENGING SESSION
by Claude Chendjou
PARIS (Reuters) – European stock markets, with the exception of Frankfurt, ended in the green on Thursday and Wall Street was also moving on a positive note at midday after a volatile session where investors tried to digest the decisions of the US Federal Reserve and the latest announcements on the situation in Ukraine.
In Paris, the CAC 40 ended with a gain of 0.36% to 6,612.52 points. The British Footsie took 1.28%. The German Dax, however, lost 0.36%.
The EuroStoxx 50 index fell 0.11%, while the FTSEurofirst 300 gained 0.52% and the Stoxx 600 0.45%.
Equity markets were hesitant throughout the session as investors initially spooked following the Kremlin’s denial of progress on a peace deal between Moscow and Kyiv, the Russian military having also continued Thursday the shelling of the cities of Ukraine.
Kremlin spokesman Dmitry Peskov, however, said the Russian delegation was expending “colossal” energy in talks with Kyiv, fueling hopes for a diplomatic solution.
On the macroeconomic level, the Fed announced, as expected, a quarter-point rate hike on Wednesday evening, but hinted that this first hike could be followed by six others by the end of the year. a steady pace that has divided analysts.
“Such an acceleration of the tightening increases the risk of a hard landing in the future and suggests an increased risk of recession over the next two years,” said Allison Boxer, economist at Pimco.
Mike Bailey of FBB Capital Partners, however, felt that, for now, the market does not see the Fed’s decisions as a “mistake” and that investors still have the possibility of adjusting their position each month and at each meeting of the Fed. the US central bank.
The Bank of England (BoE), for its part, announced a further interest rate hike on Thursday, to 0.75%, the third in as many meetings, but it was more cautious about the need for continued monetary tightening in the coming months.
In the euro zone, Christine Lagarde, President of the European Central Bank (ECB), declared that the institution had “additional margins” between the end of its purchases of securities on the markets scheduled for this summer and the first increase in its interest rates for more than ten years.
All these announcements blew hot and cold but the lull returned at the end of the session on the markets, the CBOE volatility index in the United States falling by 3.03% and its European equivalent having ended down 11.1%.
VALUES IN EUROPE
On the pan-European Stoxx 600, financials (-0.49%) recorded the largest decline and energy (+2.13%) recorded the best progress.
In Paris Vallourec (+2.09%) and TotalEnergies (+1.03%) benefited from the rebound in oil prices. In London, BP advanced 2.05%.
In the automotive sector, where the Association of European Automobile Manufacturers (ACEA) reported a further contraction in registrations in Europe in February, of 5.4% over one year, Renault, Stellantis and even BMW declined from 2.9% to 5.4%. Exane BNP Paribas also lowered its recommendation to “neutral” on the diamond group, emphasizing its exposure to the European market, while that of Volvo (-4.5%) was reduced from “neutral” to “underperformance “.
German industrial group Thyssenkrupp, for its part, fell 9.4% after it suspended its free cash flow forecast for the year and questioned the spin-off of its steel business due to the conflict in Ukraine.
AT WALL STREET
At the time of the close in Europe, the Dow Jones advanced 0.43%, the Standard & Poor’s 500 0.46% and the Nasdaq 0.28%, but the three major indices moved several times during the session in red and green.
Ten of the rating’s eleven major sectors are moving into positive territory, with energy posting the largest gain with Chevron and ExxonMobil on the heels of the rebound in oil.
The banking sector, which had benefited the most from expectations of a rate hike, fell by 0.84%.
Ralph Lauren, up 3.5%, is supported by JP Morgan’s recommendation to “overweight” the stock.
THE INDICATORS OF THE DAY
Inflation in the euro zone was revised in February to 5.9% at an annual rate, a historic level, under the pressure of rising energy prices.
Industrial production growth in the United States slowed in February to 0.5%, but remained in line with expectations, while jobless claims last week in the United States fell more than expected, to 214,000.
Business conditions in the Philadelphia area improved in March, with the index rising to 27.4 from 16.0 in March. February.
CHANGES
The dollar, which had largely benefited from rate hike expectations, lost ground against other major currencies (-0.73%).
The euro, up 0.74%, continues to rise to 1.1111 dollar, in the prospect of an easing of tensions in Ukraine.
The pound sterling fell 0.62% against the euro after the unsurprising quarter-point increase in the Bank of England’s key rate, which was also cautious about its future increases. The money markets are only expecting a 120 basis point rise in British rates by the end of the year compared to 170 points forecast before the BoE’s press release.
RATE
The yield on ten-year US Treasury bills lost 2.3 basis points to 2.1617%, while that of two years fell 4.1 points to 1.9282%, after reaching 2.246% and 1, respectively. 9282%, the highest since May 2019, in response to Fed announcements.
The yield spread between these two bonds fell to 19 basis points, the lowest spread since March 2020, tending towards a flattening of the yield curve, a sign that the markets anticipate both a sharp rise in key rates and an increase in the risk of recession in the medium term.
In the European market, the ten-year German Bund yield fell 1.2 points to 0.3870%, while its French equivalent fell 1.3 points to 0.8430%, as Christine Lagarde said that the ECB was in no rush to raise interest rates.
OIL
The oil market is buoyed by the warning issued by the International Energy Agency on the risk of seeing the world supply of crude and refined products cut by three million barrels per day (bpd) from April because of the sanctions against Russia.
The barrel of Brent jumped 8.7% to 106.53 dollars and that of American light crude (West Texas Intermediate, WTI) by 7.92% to 102.49 dollars.
(Report Claude Chendjou, edited by Jean-Michel Bélot)